SKS Microfinance bosses unload shares ahead of issue

SKS Microfinance chairman Vikram Akula has part sold his stake in the company making a 12-fold profit before an initial public offer which may worry potential investors about the commitment of the management, experts say.

ET Bureau|

Mar 31, 2010, 06.18 AM IST

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NEW DELHI: SKS Microfinance chairman Vikram Akula has part sold his stake in the company making a 12-fold profit before an initial public offer which may worry potential investors about the commitment of the management, experts say.

Mr Akula, the original promoter of SKS, sold a part of his stake last month to hedge fund Tree Line Asia for Rs 60 crore, a valuation more than double that paid by Infosys founder NR Narayana Murthy’s fund a month before, offer document filed with the regulator shows.

“This does not indicate a long-term commitment of the senior management to the company,” said MS Sriram, professor of microfinance at the Indian Institute of Management-Ahmedabad. “All they have agreed to lock in is their options as and when they exercise.”

Chief executive Suresh Gurumani, finance head S Dilli Raj and chief operating officer MR Rao have also sold shares. Mr Akula, who in the past declined to discuss share transactions, could not be reached for comment. A company spokesperson and Mr Rao declined comment, citing the quiet-period ahead of the IPO.

SKS Microfinance, founded as a not-for-profit organisation, Swayam Krishi Sangam, in 1997, is planning to raise about Rs 1,200 crore in the share sale. It will be the nation’s first micro-finance company to list on the exchanges when the IPO process is completed.

Micro lending, where interest charges are an exorbitant 40% a year, is becoming the latest fad in the funds-starved nation, with some top executives such as Morgan Stanley’s former India head Narayan Ramachandran heading for it.

All the four SKS executives were allotted shares under the Employees Stock Option Schemes (ESOPs) between 2007 and 2008 at an average price of Rs 49.77 a share. Those were sold to Tree Line at Rs 636.70 per share last month. In January, Mr Murthy’s fund, Catamaran Investment, bought 937,770 shares of SKS at Rs 300 apiece, offer document shows.

The sale of stakes by Mr Akula and others has led to a peculiar situation where some private equity funds, which own stakes in the lender, has offered themselves as promoters, a first in India. Regulations require that promoters own at least 20% in the company at the time of IPO. Sequoia Capital, MUC and SKS Capital are SKS Microfinance’s promoters now.

In February this year, Mr Akula sold 945,424 shares. He had also sold 16,36,138 shares in September 2008 for Rs 17 crore to SKS Capital, which is owned by Kismet Capital and Ashish Lakhanpal. He was allotted these shares at Rs 10 each at par in March 2007 for Rs 1.64 crore.

Mr Akula has agreed not to sell, or lock-in, the 17,69,537 shares allotted in 2008 under stock options. But these are yet to be converted into common shares.

SKS’ IPO consists of 16.80 million shares. It includes offer for sale of 9.35 million shares by Sequoia and others and new issue of 7.45 million shares. At the last transaction price of Rs 363.70 per share, the company will be valued at Rs 4,582.50 crore and the issue may be for Rs 1,075 crore.

Out of this, Rs 475 crore will come into the company and balance Rs 600 crore to private equity firms and mutual benefit trusts.

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